Reason.com Features Ryan Dreveskracht's Exposition Of Fed-States-Big Tobacco Unholy Alliance

Ryan Dreveskracht's exposition in Native American Times about the Master Settlement Agreement, was quoted at length in a recent reason.com blog post, "Tax-Hungry State Officials Revive Indian Wars Over Cigarettes."

As part of an interesting analysis of the cigarette tax standoff, Ryan D. Dreveskracht summarizes a major tax collecting approach for Native American Times:

In 1998, the Attorneys General of 46 states, five U.S. territories, and the District of Columbia settled various legal actions involving antitrust, product liability, and consumer protection claims against the nation’s four largest tobacco companies. (In the early years of the Bush Administration, the Department of Justice decided not to pursue claims against tobacco manufacturers for harm caused in Indian country). The states wanted billions of dollars, and were likely right to demand it. The tobacco companies, however, anticipated that they would have to substantially raise cigarette prices to pay for their financial obligations to the states. They also knew that by raising their prices, other nonparticipating companies would have a competitive price advantage.

In settling the suits, the major tobacco companies got a sweetheart deal. As part of the settlement agreement, states agreed to enact and “diligently enforce” escrow statutes that “effectively and fully neutralize[d]” competition from nonparticipating companies. These statutes impose financial obligations on non-participating companies by requiring them to make escrow payments based on the number of tax-stamped cigarettes sold in a participating state. Participating tobacco companies are not subject to these payments. Nonparticipating companies, however – companies that have never been sued or found culpable for conduct giving rise to liability – are required to make the payments.

Ryan Dreveskracht is an Associate at Galanda Broadman, PLLC.  His practice focuses on representing businesses and tribal governments in public affairs, energy, gaming, taxation, and general economic development.  He can be reached at 206.909.3842 or ryan @galandabroadman.com.

2nd Circuit Gets Stupid With IGRA

In a horrid opinion in Mashantucket Pequot v. Town of Ledyard, the Second Circuit scrutinized IGRA's tax preemption provision, 25 U.S.C. 2710(d)(4), which provides:

nothing in this section shall be interpreted as conferring upon a State or any of its political subdivisions authority to impose any tax, fee, charge, or other assessment upon an Indian tribe or upon any other person or entity authorized by an Indian tribe to engage in a class III activity.

Astonishingly, the Second Circuit held that this provision somehow does not operate to outlaw state taxes on Class III slot machine vendors, meaning on "entit[ies] authorized by an Indian tribe to engage in a class III activity." The panel reasoned that “IGRA does not directly preempt, by its text of by plain implication. . . . IGRA addresses state taxation, without prohibiting taxes." Wow.

Indeed, in the way of judicial realism, the Second Circuit overlooked contrary interpretations of 2710(d)(4) by its sister circuits. Consider, for example, what panels in Cabazon II (9th Cir. 1994) and Rincon (9th Cir. 2010), have said about that statute over the last two decades:

Cabazon II: “IGRA preempts the State of California from taxing offtrack betting activities on tribal lands.” Rincon: “[N]othing in IGRA can reasonably be construed as conferring on states the power to impose anything [fees or taxes]; all the states are empowered to do is negotiate.” Id.: “Under 2710(d)(4), it is not only ‘taxes’ that are precluded, it is any ‘tax, fee, charge, or other assessment.’”

We've now arguably got a circuit split. Until that--heaven forbid--might ever be resolved on high, gaming tribes in the West should be protected from the state tax man under cover of Cabazon II and Rincon. Those mega-gaming tribes in the Northeast, maybe not so much.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  Gabe assists tribal governments and businesses in all matters of tribal economic development and diversification, including entity formation and related tax strategy. He also helps tribes and tribal businesses and joint ventures withstand attack from federal, state and local government. Gabe can be reached at 206.691.3631 or gabe@galandabroadman.com.

How I Learned To Stop Worrying And Love Bracker

Mashantucket Pequot Tribe v. Town of Ledyard (2d Cir.), handed down last month, has confirmed what we all know about Bracker balancing: when applied, Tribes usually lose. In fact it seems every time courts apply the Bracker balancing test, it becomes erroneously less possible to pass.  See Ute Mountain Ute Tribe v. Rodriguez, 660 F.3d 1177 (10th Cir. 2011); Barona Band of Mission Indians v. Yee, 528 F.3d 1184 (9th Cir. 2008).  By way of background, Bracker essentially preempts taxes on non-Indians in Indian Country where the interests of the state are outweighed by the interests of the Tribe and the federal government, with the latter usually being borne out through federal regulation.  White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980).

In Ledyard, the Mashantucket Pequot Tribe sued a neighboring town to bar Connecticut’s personal property tax upon vendors leasing slot machines to the Tribe for use at Foxwoods Casino.  In applying Bracker, the court recognized and weighed the following interests:

Federal

-       tribal economic development as expressed through IGRA

-       tribes being primary beneficiaries in gaming

Tribal

-       economic development

-       sovereignty over reservation

State/Local

-       interest in preventing litigation by other Indians related to personal property

-       the hassle of a particularized inquiry into use of leased property when applying Bracker

-       generalized off reservation infrastructure

-       uniform application of tax code

Given the nebulous context of balancing tests, it’s very rarely possible to say a Bracker case was fundamentally incorrect.  But it’s possible in Ledyard.  The profound federal and tribal interests receive a gloss, but the court gives weight to incredible state and local issues that don’t make sense internally.  First, the court reasoned that states have an appreciable interest in preventing litigation by those who have been illegally taxed.  How can a state have a legitimate interest in preventing litigation to enforce valid legal rights?  Wow, we have a major problem.  Second, the court reasoned that states have an interest in avoiding complicated, particularized inquiries into who and what is being taxed.  But Bracker itself requires a "particularized inquiry" into taxed value to determine whether state taxes are preempted—we have an even more major problem.  Third, if generalized off-reservation services can be taken into account, we have a major, major problem.  Add to the legally incorrect analysis the flip voice of this panel—“ nothing in Connecticut’s tax makes it likely that Michael Corleone will arrive to take over the Tribe’s operations” —and, in sum, we have a major, major, major problem.

When Bracker fails even in the clearly preemptive IGRA context, caution must be used in using it at all.  While Bracker may still be viable in the administrative context, and in securing clear rulings from non-tribal taxing agencies, in courts, its demise may not have been exaggerated—until a court reads the 1980-decision correctly.

Anthony Broadman is a partner with Galanda Broadman PLLC.  He can be reached at anthony@galandabroadman.com.  His practice focuses on company-critical litigation and representing tribal governments in public affairs, taxation, and economic development matters.  He provides businesses and tribal governments advice regarding taxation, risk management, and legislative strategy.  Anthony was named a Rising Star by Washington Law & Politics magazine for 2013 and is immediate past Chair of the WSBA Administrative Law Section and Editor of the Indian Law Newsletter, published by the WSBA Indian Law Section.

IRS Targeting Is Nothing New—For Indian Country

Lost in the IRS-Tea-Party scandal is the fact that federal tax collectors have been targeting certain groups—Indian tribal governments—for years.

As Rep. Darrell Issa, R-Calif., Chairman of the House Oversight Committee, wastes Congress’s time on what really looks like a manufactured scandal, Indian Country should focus its attention on the IRS’s special wing—the ITG—focused on “provid[ing] Indian tribal government customers top quality service by helping them understand and comply with applicable tax laws, and to protect the public interest by applying the tax law with integrity and fairness to all.”  Which is code for auditing them.

The irony hasn’t been lost on those paying attention.

If the IRS had a division focused on providing anti-tax group “customers top quality service by helping them understand and comply with applicable tax laws,” Representative Issa might have a real scandal on his hands.

For what it’s worth, it would be more rational for the IRS to have a division focused on anti-tax groups as opposed to tribes.  Anti-tax groups are—surprise—less likely to pay taxes.  But ironically it is tribes and tribal members—supposed “Indians not taxed” according to the Constitution—who have been targeted and forcibly taxed by Uncle Sam since long before Representative Issa’s crusade.

Anthony Broadman is a partner with Galanda Broadman PLLC.  Anthony’s practice focuses on company-critical litigation and representing tribal governments in public affairs, taxation, and economic development matters.  He provides businesses and tribal governments advice regarding taxation, risk management, and legislative strategy.  Anthony was named a Rising Star by Washington Law & Politics magazine for 2013 and is immediate past Chair of the WSBA Administrative Law Section and Editor of the Indian Law Newsletter, published by the WSBA Indian Law Section.

Round Valley Lawyer Gabe Galanda Quoted By McLatchy Re Interior's Buy Back Scheme

Gabe Galanda is quoted at length in a nationally syndicated article by McLatchy Newspapers regarding Interior's nascent land buy back program.

“There’s no love for California Indian Country,” said Gabriel Galanda, a Seattle lawyer and a member of the Round Valley Indian Tribes of Mendocino County, Calif. He called the program “a disaster” in the making. . . Galanda, the Seattle lawyer, questioned why the same government agency that mismanaged Indian trust land should now be trusted to provide a fix. “Funding the agency to correct the problem they caused is not a prudent use of taxpayer dollars,” he said.

The article observes: "critics are skeptical, saying that federal law will still allow tribes to ultimately force unwilling minority landowners to sell once they’ve acquired 51 percent ownership of any individual parcel." Galanda is among those critics, having published several commentaries about the buy back program:

When Bureau of Indian Affairs Director Mike Black was pressed, he was forced to admit that the buy back program is specifically designed to bring tribes into at least a controlling 51 percent interest in fractionated allotted or restricted lands—at which time a tribe could then, on its own volition and with its own funding, force the sale of the remaining 49 percent or other minority interest. Make no mistake about it: while Interior’s plan now disclaims that it will facilitate forced sales under 25 U.S.C. 2204, the buy back program will catalyze controversial intra-tribal forced sales.

Consider Gabe's exchange with Director Black at a recent consultation session hosted by Interior in Seattle:

MR. GALANDA: What if one single undivided 18 interest holder objects to the sale? Does it then become an 19 involuntary sale that's ineligible for acquisition? 20 MR. BLACK: No. Every individual interest is 21 based on a willing seller. 22 MR. GALANDA: Okay. 23 MR. BLACK: So if -- you know, if there's five -- 24 well, let's just say there's ten interest holders within a 25 parcel or an allotment, nine of them want to sell and the one doesn't, he doesn't have to sell or she doesn't have to 2 sell. It does not preclude from going out and purchasing 3 the other nine interests. 4 MR. GALANDA: So the tribe would then have the 5 controlling 90 percent interest and the dissident would 6 still have their 10 percent? 7 MR. BLACK: Yes. 8 MR. GALANDA: But could the tribe then force the 9 sale on that 10 percent interest once it's acquired 10 90 percent interest? 11 MR. BLACK: It wouldn't be necessarily under this 12 program. But there is some language within AIPRA that I 13 don't know the specifics of, that there is some ability for 14 tribes to do some purchase under AIPRA. 15 MR. GALANDA: So the idea is let's bring the 16 tribes into a controlling level of interest voluntarily, but 17 then the tribe could cause an involuntary sale of the 18 minority interest, in terms; is that correct? 19 MR. BLACK: I would rather turn that over to our 20 solicitors for a specific question, but there are 21 opportunities to do that, yes. I don't believe any tribes 22 really exercise that today, that I'm aware of, but this -- 23 there are options out there available. 24 MR. GALANDA: Well, I think you understand, 25 though, there's two pending forced sales within this region right now. So I just think it's something that we should be 2 aware of. I don't think it's a healthy presumption to 3 suggest that this will be done 100 percent voluntarily.

Interior should get honest and admit that the current buy back program is not "entirely voluntary"--it will catalyze the forced sale of tribal member-owned lands, by their own tribes. Heeding the so-called "lessons of Cobell," Interior must be more forthright and proactive about such obvious forthcoming legal entanglements. Oh what a tangled web we weave.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  Gabe assists tribal governments and businesses in all matters of tribal economic development and diversification, including entity formation and related tax strategy. He also helps tribes and tribal businesses and joint ventures withstand attack from federal, state and local government. Gabe can be reached at 206.691.3631 or gabe@galandabroadman.com.